What’s It With The Poor – Subsidizing The Rich

Wednesday, October 7, 2009, PM | 1 Comment

The poor are subsidizing the rich – say what? Are you crazy? No I am not crazy. Let me explain. A rich dude with 10 credit cards goes into a store and buys stuff using his plastics.

The card companies charge the store a certain amount of fees for giving the store the convenience to let the customer pay with the card.

A poor dude goes into the store but he buys with cash, assuming he has enough cash, paying the same price as the rich.

The price set by the store takes into account the fees when things are bought with plastic.

The poor dude just shared something with the rich and the store without knowing he actually did when he did.

The current system is a maze of hidden fees whether we pay with plastic or cash. It seems reasonable to assume that the costs of all that are included in the prices charged to everyone.

“Food stamp recipients pay the higher credit prices for things they buy with food stamps,” said Mallory Duncan, the general counsel of the National Retail Federation. “They are subsidizing the people who get miles.”

The question is why is that?

Retailers claim their contracts with banks impose restrictions that make it difficult to offer such discounts without running afoul of the agreement and facing financial penalties.

Moral of the story
It does seem absurd to have a system that requires people who do not use credit to subsidize those who do.

A middle-class person can get a part of his purchases refunded by the bank, or can collect miles good for free airline tickets, while paying the same price as a poor person who can get none of those benefits. There is, then, definitely something wrong with the system.

Let’s hope the U.S. Congress will fix this problem.

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